Potential Reasons for Potential Dwindling of Apple's Stock Value in 2023
Apple's beloved AAPL stock has been on a rollercoaster ride since the onset of the pandemic, hitting an all-time high with a staggering market cap of $3 trillion. However, the cherished momentum might not last this year. The combination of iPhone sales stagnating, a potential loss of a substantial revenue stream, and an exorbitant valuation could put some pressure on this tech giant.
iPhone sales: Not as shiny as they used to be
While Apple continues to sing the praises of its recent iPhone models, consumers are growing weary of the annual upgrade hype. The tech world has matured, making it more challenging to distinguish between the features of this year's flagship and last year's.
Apple's bet on AI, Apple Intelligence, hasn't provided the expected boost. A survey revealed that an overwhelming 73% of iPhone users deemed the AI features as adding minimal or no value. Although Apple might improve its AI offerings over time, the impact on iPhone sales remains to be seen.
The latest numbers reveal a mild increase in iPhone revenue over the past year, with sales even reportedly dropping by 5% during the holiday season. With the iPhone accounting for over half of Apple's total revenue, reversing this trend will be no small feat.
The Google gravy train: End of the line?
Apple's pocket change – over $20 billion annually – comes from the friendly deal with Alphabet, granting Google the coveted role as default search engine on the Safari browser. This sweet revenue is primarily profit, representing approximately one-sixth of Apple's annual operating income.
Google is facing a possible antitrust trial in April, leaving this vital revenue stream in jeopardy. A potential shift in the winds could put a halt to those generous payouts. As investors, we would be wise to consider the potential financial hit Apple might experience if this gravy train comes to an end.
Apple's valuation: Royalty or riches?
Despite iPhone sales stagnation and uncertainty surrounding the Google payments, Apple shares trade at a lofty 38 times trailing-twelve-month earnings. When you look back, this is Apple's most expensive loveseat since the pandemic began.
Interest rates and their influence on stock valuations are factors worth examining. In recent times, the yield on the 10-year U.S. Treasury has surged, nearing a whopping 5%. The significance of these rates can't be overlooked, as they form a benchmark for judging the potential returns available for riskier assets like Apple.
Given its comparatively sluggish revenue growth and potential for reduced profit margins, Apple's inflation-adjusted share price might be overpriced.
The platonic love affair between Apple stock and its admirers has persisted for five years, irrespective of the weaker revenue growth. But with the glitzy valuation now glowing brightly, a correction might be on the horizon for this tech behemoth.
Despite the potential loss of revenue from Google payments due to an antitrust trial, Apple has maintained a high valuation with shares trading at 38 times trailing-twelve-month earnings. This high valuation, driven in part by investors' admiration for Apple, could make it more susceptible to financial corrections, especially with interest rates surging and inflation-adjusted share price being considered overpriced.
To diversify its income stream and alleviate the pressure from iPhone sales stagnation, Apple has been investing in AI, specifically with Apple Intelligence. However, the impact of these AI offerings on iPhone sales and overall revenue remains unclear, given that a majority of iPhone users found the AI features to be of minimal or no value.
